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Saturday, October 31, 2020

“This is a bad sign for producers.” The pandemic is hitting the coffee market

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The demand for coffee in the hotel industry, gastronomy and catering – the industry which is the main recipient of beans – has decreased. The reason is pandemic limitations – pointed out the Polish Economic Institute. According to experts, concerns are raised by restrictions that have been renewed in the context of the second wave of the pandemic.

As PIE pointed out, in the long run, the price of coffee beans is currently low, and the downward trend has continued since its peak in April 2011.

The decline, according to experts, results from such factors as, for example, low elasticity of the demand for coffee. “Its supply has exceeded the demand in recent years, and large roasteries working mainly for mass producers and café chains have a strong bargaining position” – indicated analysts in the last issue of “Tygodnik Gospodarczy PIE”.

In turn, in shorter time periods, coffee prices are characterized by high volatility, resulting from weather changes, to which high mountain coffee plantations are particularly sensitive, as well as fluctuations in currency and oil prices.

Coffee prices changepie.net.pl

Shopping panic

PIE noted that at the beginning of the pandemic – from February to April, prices began to increase significantly, which in turn resulted from increased demand. “This is the result of a panic in purchasing and the desire to stock up on additional stocks for unstable times. Availability of beans on the market decreased significantly in a short time, and prices were rising” – they recalled. A little later, the coffee market experienced the opposite process – “pandemic constraints caused a significant drop in demand in the HoReCA sector, which is the main recipient of beans.” The prices were also affected by the weaker tourist season than the previous ones.

“There are also concerns about the future supply,” said analysts. For example, Brazil, which produces almost 40 percent. the world’s grain resources, is a country in which the pandemic was developing extremely intensively. For weeks, it was not certain how this would affect the harvest, which peaks in June and continues through July. In addition, the fate of international maritime connections, port capacity and the availability of seasonal workers who migrate to harvest work were uncertain, they added.

Currency fluctuations

The analysts pointed out that currency fluctuations were one of the factors limiting the more radical price increase. Most of the transactions on international markets are made in US dollars, while the majority of coffee producers are developing countries: Brazil, Honduras, Guatemala, Vietnam. “Some of these countries experienced significant fluctuations in the exchange rate of their domestic currencies against the dollar. For example, the significant weakening of the Brazilian real allowed producers to avoid lowering revenues despite falling sales” – they noted.

In recent months, changes in demand, supply and prices on the coffee market resembled a roller coaster ride, pointed out PIE. “This is a bad sign for producers who, due to the specificity of crops (very fragmented markets, small farms), are poorly protected against such shocks” – he emphasized.

According to PIE, the demand forecasts in the HoReCa sector are still uncertain in the face of renewed restrictions resulting from the second wave of the pandemic. Climate change is also a threat, which in the long term may have much more serious negative consequences than the pandemic crisis – they assessed.

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